Greenply Industries

Stock Opportunities
21

atul,

there is a little twist to the model here in case of greenply:

Company with a good brand which has done capex and is temporarily facing teething problems. (In this situation they will have problems of low capacity utilisation and hence lower margins/losses and higher interest payments for debt taken for expansions – key remains to find out which companies are going to come out smiling and which are going to sink) Once these are overcome there might be better times ahead for these. These are somewhat akin to turnarouds. Turnarounds dont necessarily go from losses to profits only but ocassionally from lower profits/stagnant profits to strong growth track once they get favorable environment for growth.

Most of the times during tough times most of investors have given up on these companies and hence there is underownership of the stock. Once things get on track there will be a strong rush to own these companies followed by euphoria.

22

One thing one clearly remembers about Greenply is the distinctive ads one sees . whether its Tareekh per Tareekh or others the company has wisely invested in brand building which will help it in good stead in the competitive world.

Purchasing power of Indians is increasing n they’d are willing to pay a premium to quality products.

Greenply qualifies on these counts. Chinese imports are no longer very attractive due to quality issues n currency appreciation. Otherwise it would have decimated Mayur Uniquoters business.

1 Like
23

Hi All,

I have few doubts

1). MDF seems to be game changer for company next year company can clock revenue of 400+ Cr from this segment and market is still much more market is available. can you have any idea like company will be still able tomaintainsame EBITA level for this segment, Which all others company work on this segment and how about their margin.

2). Plywood market EBITA seems to bedecreasing , by when we can expect that this level be maintained to 11%and what is the expected driver for same.

3). Where we can check the current debt and repayment of debt done by the company in few Q (as mentioned by hitesh sir company has payed some 60 Cr ).

Thanks, V.

24

Vishal,

You can go throughthe qtrly earnings announcement on the bsehttp://www.bseindia.com/xml-data/corpfiling/AttachHis/Greenply_Industries_Ltd_291012_Rst.pdfwhere in the non-current liability you can see the reduction of 28.33Cr in long term borrowings and in the current liability you can see the reduction of 42.53 Cr in short term borrowings.

25

Among the risks involved, from the HDFC Sec report,

_"…GIL is already operating close to peak levels (in plywood and laminates) and hence does not have scope for significant improvement in utilisation post FY14. Hence in the next two years, the company will have think on** further expanding its capacities** to meet the increasing demand and sustain its growth momentum.
_

_One other option is to concentrate on value added products so that the volume growth beyond a point is muted but value growth and margin growth could be better.
_

This could once again expose the company to risks like high interest burden, delay in ramp up, equity dilution etc, as witnessed in the past. While, this is likely to happen only after two years and not now, this future concern could continue to hover around in the minds of investors…"

Both in case of La Opala & Greenply the companies are finding themselves in a sweet spot due to favorable govt. regulations, which may change abruptly in the future as well.

Secondly, in the point highlighted above, the company will again fall in the vicious cycle of high capex, high depreciation, interest burden hitting PAT levels from FY15 onwards.

On the positive side, found this blog which provides lots of insights

http://greenpanelmaxmdfboards.blogspot.in/

26

Thanks Hitesh.

Rudra,

I agree that both la-opala and greenply have favorable tailwinds in terms of policies, however, personally I feel, la-opala has shown much better performance even without the favorable policies.

27

Thanks Rudra for highlighting the article. Insightful. Lots to be updated on.

-Donald

Link: http://greenpanelmaxmdfboards.blogspot.in/

28

If one looks at the bigger picture for the plywood industry and the opportunity size for greenply in particular there is a huge addressable market.

Indian wood panel market is close to 16000 crores out of which plywood etc account for 12500 crores. Out of this organised sector has only around 2800 crore market share. MDF has a market of 3500 and in this there are no organised players. Most of MDF demand is met with imports to the tune of 65%.

And apparently greenply has a dominant market share in most of the segments it operates in.

Hence for a company with market cap of close to 700-800 crores if the company can execute things in a proper way then there is a big big opportunity.

I dont know about the market size for the products of la opala. Plus not much idea about competition in terms of domestic or foreign competitors.

29

@Rudra: Thanks for sharing a very good link.

Going by the presentation and one of the articles, it seems the Q2 is very much sustainable…infact even better performance can come up. I think the stock is offering a good opportunity for medium term at these levels.

Ayush

30

Talk about coincidence Hitesh. (or maybe just recency effect).Last two weeks I was in process of buying new office furniture. (Finalised Wednesday, will be delivered today

After going through the painful process of evaluating options, costs in both readymade/tailor-made, here are my findings from street:

a) It’s a very fragmented mkt with painful decisions to take at each step by untrained customer (me).

b) Unlinke paints (Asian), plumbing (Ashirwad/Astral), electrical (Polycab/Legrande/Roma) - where the last-mile contractor undertaking the job sells on the brand of the material he’ll use, I found almost all carpenter’s describe the material in generic terms - the three most common types being particle board(cheapest), commercial or marine ply(costliest). Few talk about real wood. I did not get a single carpenter who said he’ll use Greenply (or XYZ brand) ply. Hell, most carpenter’s don’t even specify the thickness of the ply they will use. They just say “accha mazboot cheez bana denge same to same jaise catalog mein hai” - but can’t define mazbooti in cms it seems. LOL. At some point in the quotation process, either you trust the guy because he came via prevs reference (not the case for me), trust blindly or give up. I gave up. Even in generic terms, what I also found was most carpenter’s themselves didn’t know difference between particle board, MDF and their various applications. All these guys only describe in terms of costs. So I think other than advtg/branding which Greenply has, like Astral they need to create a demand pull from carpenter’s side by conducting training/workshops to spread awarenesss abt MDF.

None of these guys even mentioned using $anyBrand MDF. Until now even I wasn’t aware that MDF was manufactured locally and Greenply had monopoly in it. So there’s certainly some branding work to be done to disassociate the ply exclusivity from Greenply name.

c) On readymade front: I visited atleast 3-4 big showrooms in Navi Mumbai (Vashi), all next to each other, and most of them keep imported Chinese/Malaysian MDF furnitures. Many of them don’t even know whether it’s Chinese or Malaysian. For them it’s just ‘imported’. For a simple 3-unit desk set I was looking at the price range was a wide 20K-28K range for similar setup +/- a few minor things. Almost all these MDF units had excellent fittings/finishing, which no local carpenter can match that’s for sure. Even a Durian showroom kept imported MDF desks. Similar job with local carpenter but with ply would have cost me around 20K-24K with no guarantee of finishing of final product.

I finally decided to go with readymade MDF deskset from a mid-range shop for 16K, exact same piece available in fancy showrooms for 25K. So it’s clear the market supports a lot of pricing leeway, and some of the high-street shops are marking up more than 100% margins.

d) I also noticed in almost all small/mid-range furniture shops that Nilkamal is aggressively entering this segment - They now even have their own modular range, and have built a good brand with all shopkeepers talking highly of it and in some cases displayed next to imported MDF range with killing margins. I’ve also seen their products occupying more and more shelfspace in local D-Mart. Quick look at screener tells me that it’s a healthy biz at mcap 350 crores, but what’s killing them is debt servicing. On EBIDTA of 150 crs, NP in their hands is only 50 crs. Anyone has a view on this?

Sorry to jut in with my thoughts sprayed all over. Just that the topic was so relevant and immediate for me. (This is called scuttlebutt right? :slight_smile:

1 Like
31

effect).Last :))

Great scuttlebutting, but here in Banaglore I have noticed a lot of GreenPly Outlets. Almost one per kilometer on my way to office. Need to speak to them whenever time permits.

32

kamikaze,

thanks for the updates and scuttlebuts.

where are u setting up your office? If the greenply guys have lots of visibility and practically none where u set up the office, then thats more area to grow for the company.(thats an optimistic shareholder in me coming out)

hitesh.

33

Hi Suhail,

What you are saying is kind of right that in the model of greenply, we won’t get a push from the carpenter but stillbecauseof the advertising and brand re-call, I see Greenply and century as popular and strong.

I was speaking to my client who deals in plywoods (greenply too), as per him, the sales are strong and they have a good steady growth rate. He was very much aware about their MDF foray and the increasing profitability from that segment :slight_smile: He was all praise for the co.

On negatives, yes, this business is highly price sensitive and it would be though for them to have any major premium over others.

Ayush

34

Hitesh,

Below are some of my questions regarding green-ply.

1). Down here in bangalore, greenply sells its product through its subsidiary Greenlam. Do u know if these are independent subsidiaries?

2). The timber industry is already organised in the sense that most of the timber stores are owned by Gujrati patels. Also they have a very strong/robust bond with the carpenters and furniture outlets. Do you think in such a scenario company such as greenply can make a dent into the their share?

3). The company is still in capex mode, the latest being,setting-up a new medium density fiberboard (MDF) unit in Andhra Pradesh for value added products? Do you think the indian market is big enough to have dedicated facilities for such products? Personally I am positive on this as here in Bangalore the luxury segment in real estate is on a boom.

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1).

2).

3). being,setting-up

Adding further to the third point, the debt to equity ratio for greenply already isn’t that comfortable.Do you think continuous capex by the company while increasing its debt is good for the company. That it won’t turn out to be another diamond power?

36

Hitesh,

1).

2).

3). being,setting-up

Sorry in case my questions do not make much sence. I have just started learning about stock market.

37

Greenlam, greenply’s subsidiaries Facebook page with 1.6 lakh likes. That is quite a following

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[

Greenlam Laminates | New Delhi

Greenlam Laminates honored with Best Laminate brand Award by Zee Business

http://www.indiaprwire.com/pressrelease/construction-building/20121123137504.htm

](Greenlam Laminates | New Delhi)

39

Hi Soumya,

Possible answers to your queries:

1). I think Greenlam is the brand name they had brought in while launching the laminates. As this was used in advertisements, so it must be used freely across other products.

2). Greenply is already a market leader and has a good market share. We don’t need to worry on this front. The worry is, can they maintain recent margins going forward?

3). As of now the debt:equity is ok and looking at the current success in MDF, it makes sense to go for expansion. However the issue on my mind is - as the competition heats up, will the margins go down in coming years in MDF segment too in coming years?

Ayush

40

1).

2).

3).

Thanks Ayush,

I think the company is cautiously trying to move towards high end value added services, to increase its margin. And as they are the only guys in this space were entry is not easy and brand name matters, they seem to have significant moat here.